Survey of Emerging Market Conditions

Most Recent Quarterly Report

Executive Summary & Conclusions

Despite the political theater that was the fiscal cliff, optimism in Florida real estate markets continued to grow in the fourth quarter of 2012. UF’s Commercial Real Estate Sentiment Index, an outlook on our respondents’ own businesses, increased again this quarter, continuing a long steady climb from its low in the fourth quarter of 2008.

While there is still concern from respondents about government spending and the lack of leadership in Washington, a majority of the comments point toward a recovering economy in Florida that is having a positive impact on the real estate market.

Florida continued to improve on the job front, ending the year at 8% unemployment, down from 8.7% at the end of the third quarter. Florida has steadily closed the gap with the U.S. unemployment rate and most of the major Florida markets are tracking with the U.S. rate. For the year, Florida added over 217,000 jobs while increasing the labor force by over 44,000 people. We are still over 270,000 jobs short of our employment high water mark, but the trend continues to be favorable, which will continue to have a positive impact on real estate markets.

Florida consumer confidence has declined slightly in the fourth quarter but remains higher than throughout the recession. The decline can be attributed to the uncertainty surrounding the fiscal cliff negotiations in Washington. Despite the agreement that kept income tax rates the same for most Floridians, there will be some continuing uncertainty as the increase in payroll taxes has an impact on spending. However, as consumers get used to the change in their paycheck, the continued improvement in the job market will provide more certainty for them to spend money and help the economy.

Tourism continues to be a strong driver for the state with over 89 million visitors in 2012, the highest level recorded. That is a 2.3% increase from 2011 according to Visit Florida. The main driver of the increase is coming from overseas visitors which reached a new record of 10.2 million. That’s almost a million more visitors than in 2011. The increases are driving investment in real estate in this sector across the state.

Optimism continues to define the real estate markets in Florida. Assuming that our representatives in Washington don’t provide another shock to the economy, we expect that the positive news will continue. We look for a positive 2013, with a strong increase in investment in Florida real estate.

Q4 2012 Survey Report

Results by Florida Market

Past Quarterly Reports:

About the Survey

The Survey of Emerging Market Conditions targets the experienced leadership and professionals of Florida's real estate development and investment community to gain insights and market intelligence on matters of fundamental importance to real estate practitioners and policy-makers across Florida.

Methodology

The Survey of Emerging Market Conditions is the only Florida-centered survey of leaders and professional advisors in the real estate industry. It analyzes prospective data to produce extensive forecasting information pertinent to 37 of the state's 67 counties. The survey is administered by the Bergstrom Center for Real Estate Studies at the University of Florida.

With the highly fragmented nature of real estate, no survey can encompass all aspects of the real estate industry. To face this challenge, the Survey of Emerging Market Conditions employs a quarterly sounding from multiple groups of market leaders and professional groups advising them.

Scope

It is important to understand the unique strengths and limitations of the Survey of Emerging Market Conditions.

Like virtually all surveys of investment real estate markets, this survey gathers opinion. Thus, it distills complex judgments, and amounts to a carefully controlled and structured conversation with truly qualified real estate experts. The survey asks questions carefully designed to avoid ambiguities, a major problem in collecting complex information.

The survey screens respondents at two levels of refinement to assure truly expert opinions. First, only persons with established real estate credentials are invited to participate. Second, each respondent is asked to respond only for those localities and property types where he or she is an active expert.

The result is that all the data collected can be regarded as authoritative, no matter how small the sample of responses for a property type-locality "cell." (We maintain a minimum of at least four respondents for any market cell to guard against response mistakes.) In short, even data from the least actively covered markets that we report have value as an additional expert opinion. In the more actively reported market cells, our data represent an extraordinary consensus of the experts.

Survey results are anecdotal findings about required returns and investment objectives of owners and investors contemplating acquisitions or deciding about the timing of dispositions. Therefore the survey is a measure of current and prospective market perceptions, including the confidence levels exhibited by leading real estate professionals and market participants. In other words, the Survey of Emerging Market Conditions is a report of anticipated returns, business outlook and other forecasting views, rather than an analysis of actual or historical performance. The most valuable benefit for many may be interpretation of survey results over time to better comprehend market trends and shifts.

Glossary of Survey Terms

Cap Rates: Capitalization rates are the ratio of expected net operating income to actual transaction price. It is regarded as important that cap rates be based on actual transaction price rather than an appraised value.

Yield: For the Survey of Emerging Market Conditions, yield is before income taxes (pre-tax), and without debt financing (unlevered). It is the rate of interest that discounts all future property cash flows back to a present value equal to the original equity investment (acquisition cost).

Absorption Rates: Refers to the number of additional units of housing, office space, etc. that can be sold or leased in a given market area over a given period of time. For the purposes of the Survey of Emerging Market Conditions, the exact time interval, market area and measure of units are not of concern. Respondents are asked only to comment on the direction of change in the absorption rate.

Occupancy Rate: Two notions of occupancy rate are the percentage of a building's leasable space that is occupied and the percentage of a building's leaseable space that is under lease. (Note that some leased space may not be occupied.) For the purposes of the Survey of Emerging Market Conditions either notion is acceptable since we are asking about direction of change in occupancy rather than levels of occupancy.

Rental Rate: The meaning of rental rate is extremely complex. In residential, it can include furnishings and utilities, or it can be net of all furnishings and utilities. With commercial property it can range from full gross rent, including janitorial services to "triple net," which excludes all operating expenses. Fortunately, for the Survey of Emerging Market Conditions this variation is a minimal issue. The survey asks respondents only about the qualitative direction of change in rental rates, however defined. Generally, the direction of change will not depend on the definition of rent.

Property Types

Property: A property is an individual asset that may include one or a collection of buildings (e.g., a business park or apartment complex). Parks, complexes, and neighboring buildings are considered one property.

The Survey of Emerging Market Conditions covers five broad property types: residential (single family, condominium and apartments), office, flex/industrial, retail and hospitality. Each property type is further divided into two or more sub-types.

Industrial: Primarily for industrial use, such as distribution, manufacturing or warehouse facilities. Flex refers to properties with a mix of office and industrial uses. Usually a single story, Flex space may be research facilities, technology/telecom facilities, or similar uses.
Office: Primarily used for office space. Office properties may have a small retail component (especially in CBDs on the street level), or a parking garage, or other attached uses.
Apartments: Includes all rental residential properties with more than four units.
Single Family: Includes single family detached, individually owned residences in structures with up to four units, and individually owned townhouses.
Condominiums: For the Survey of Emerging Market Conditions, includes all individually owned residences in structures with more than four units, and with facilities owned in common. Note that this excludes many townhouses.
Retail: The Survey of Emerging Market Conditions utilizes the ICSC's definitions of retail assets as either shopping centers (strip or enclosed malls) or free-standing stores.
Condo Conversion: Property that was purchased with intent of converting individual units to condominium ownership.

Major Florida Markets

The Survey of Emerging Market Conditions aggregates 37 of Florida's 67 counties into the top 13 Florida markets. Counties comprising each major Florida market as follows:

Miami-Dade County
Broward County
Palm Beach County
Treasure Coast (Indian River, Martin & St. Lucie Counties)
Southwest Coast - Southwest Florida area (Charlotte, Lee & Collier Counties)
East Central Coast - Daytona Beach, Melbourne-Titusville-Palm Bay (Volusia & Brevard Counties)
Orlando - Central Florida area (Seminole, Osceola, Lake & Orange Counties)
Lakeland-Winter Haven (Polk County)
Tampa-St. Petersburg - Tampa Bay area (Hillsborough, Pasco, Hernando & Pinellas Counties)
Sarasota-Bradenton (Manatee & Sarasota Counties)
Jacksonville - Jacksonville (Duval, Nassau, St. Johns, Baker & Clay Counties)
North Central (Alachua, Marion & Gilchrist Counties)
Northwest Florida - Pensacola, Ft. Walton Beach, Panama City, Tallahassee (Escambia, Santa Rosa, Okaloosa, Walton, Bay, Leon & Gadsden Counties)

Production Staff

Lead Researcher and Analyst:
Dr. Wayne R. Archer, Director
University of Florida Bergstrom Center for Real Estate Studies
Professor of Real Estate and Wachovia Fellow,
Warrington College of Business Administration

Survey Research Analyst & Designer:
Scott Richards, M.A., Research Analyst,
UF Bureau of Economic & Business Research

Survey Website Design & Support:
ITSP Web, Data & Communication Services,
Warrington College of Business Administration

Graduate Student Production Assistants:
Ben Scheick, PhD student
Patrick Boileau, MSRE Class of 2007
Dan Carlson, MSRE Class of 2007

Participating Organizations

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